Why Dwell Time Matters

Submitted by Henry Sandee
On Tue, 02/07/2012

co-authors: Natalia Cubillos Salcedo, Julia Oliver

The state-owned operator of Indonesia’s Tanjung Priok Port is taking major steps to decrease congestion at the country’s main gateway. The company, Pelindo II, recently announced it will increase storage fees at the port to discourage shippers from leaving containers there for long periods of time. It has also said it will install a new information technology system to better monitor and direct traffic at the port.

The two initiatives are an effort to boost the performance of a port that handles two-thirds of Indonesia’s international trade. The container traffic at Tanjung Priok has grown at a rate of about 20 percent[1] the last two years and is expected to double by 2015. But containers arriving at the port spend an average of 6 days to obtain clearance and get removed, one of the highest “dwell time” rates in the region and up from 4.9 days in 2010.

Economists and government officials are trying to bring down this number. As a statistic, dwell time is a vital measure of a country’s ease of trade. When dwell time is high, it hurts the economy in two ways. First, it adds uncertainty to the exporting process, making it harder for local industry to sell goods abroad, especially those companies that are part of manufacturing supply chains with tightly controlled, just-in-time inventory systems. Second, the delays add costs to domestic businesses and consumer prices.

The port operator hopes to cut the dwell time in half with the two new improvements. It hopes the storage fees will reduce the amount of time goods are stored at the port, freeing up space for faster transactions. The information technology system will help the company monitor and direct shipping traffic, with the aim of reducing the number of collisions and using the port space more efficiently.

These initiatives are part of a positive trend in Indonesia’s willingness to improve its trade logistics in recent years. In 2008, the World Bank suggested that Indonesia take a number of steps to make its ports more efficient. One of the recommendations was to align the working hours of agencies serving the port. Indonesia has followed up on this suggestion and is working with the Bank to smooth the operations: about two years ago, the government began offering 24-hour service to ships throughout the week in the Tanjung Priok Port.

But some specific elements of the container waiting-time have been more difficult to tackle. An import container at Tanjung Priok spends the majority of its wait – 3.46 days – in “pre-clearance.” This is the time between the unloading of the container from the ship and the submission of import declarations to the customs department. Much of this delay is due to the Indonesian government’s requirement that consignees – the recipients of the goods being shipped – pre-pay customs duties and taxes before they submit declarations paperwork. These payments can take up to one day to be confirmed by the Indonesian treasury department and can take even more time if the ship’s arrival coincides with a weekend. Most developed countries, by contrast, allow consignees to submit import declarations before arrival and pay a single bill – covering port charges, customs duties and taxes – at the end of the process.

The World Bank has been working with the government to establish a “port community” made up of public- and private-sector participants to monitor and follow up on reforms. It is in this type of forum that changes to the more stubborn aspects of dwell time can be discussed. For instance, in a collaborative assessment of the port done with two local universities, the Bank team found that some private sector improvements could help make the 24-7 port services work better. The observers found customs and terminal staff members generally remain on duty around the clock. But other services, including banking, delivery of exchange rate information and cashier services, are unreliable outside of normal business hours.